Rohatyn’s Recovery Plan Calls for Infrastructure Bank

February 23, 2009, 2:30 pm

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Felix Rohatyn, the veteran financier credited with saving New York City from bankruptcy in the 1970s, believes the Unites States government should think bigger if it wants to dig the country out of its current economic hole — even if it means creating a new government-led bank.

Mr. Rohatyn, who was once a managing partner of Lazard, says in his new book, “Bold Endeavors: How Our Government Built America, and Why It Must Rebuild Now,” that he believes the country needs to spend far more money on infrastructure projects to jump-start and rebuild the economy, and argues that a new bank will be needed to manage the cash.

A book review by James Pressley of Bloomberg News quotes Mr. Rohatyn as saying, “The nation is falling apart — literally.” Mr. Rohatyn goes on to cite an American Society of Civil Engineers estimate that it will cost $1.6 trillion over the next five years to improve the country’s infrastructure.

Mr. Rohatyn’s solution, as outlined in his book, is to create what he calls the National Infrastructure Bank to serve as a sort of clearinghouse for all the major federal infrastructure projects. This would, in Mr. Rohatyn’s view, cut down on government pork, pet projects and multimillion-dollar bridges to nowhere by creating a system for evaluating and ranking projects, Bloomberg News said.

In his book, Mr. Rohatyn chronicles 10 major infrastructure projects, like the Erie Canal and the interstate highway system, that he says helped shape the United States. While Mr. Rohayn has said he supports President Obama’s stimulus plan, he also seems to wish it had gone further.

“I would argue in favor of a greater amount of infrastructure investment and probably fewer tax cuts,” he told The New York Times Magazine in a recent interview. “There should be less concern about rapid liquidation and greater emphasis on long-term investments.”

– Cyrus Sanati

Go to Article from Bloomberg News »
Go to Mr. Rohatyn’s Previous Interview with The New York Times Magazine »

http://dealbook.blogs.nytimes.com/2009/02/23/rohatyns-book-calls-for-infrastructure-bank/

Rohatyn Cites Naked Napoleon to Warn on Stupid Spending: Books

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Review by James Pressley

Feb. 23 (Bloomberg) — Thomas Jefferson, Abraham Lincoln and Franklin Delano Roosevelt had this in common: They invested in America’s future during their own perilous days in power.

Jefferson purchased the Louisiana Territory from a bellicose Napoleon. Lincoln backed the Transcontinental Railroad as the Civil War raged. Roosevelt routed electricity to farms and rural communities amid the Great Depression.

Felix Rohatyn reminds us of these achievements in “Bold Endeavors,” a timely (perhaps too timely) look at 10 episodes in which U.S. leaders had the vision and resolve to finance what private enterprise alone could not, from the Erie Canal to the Interstate Highway System.

A former Lazard Freres & Co. managing partner, Rohatyn says the U.S. needs that kind of leadership today to regenerate its aging roads and bridges, its schools and hospitals, its airports and floodgates.

“The nation is falling apart — literally,” he says, citing an American Society of Civil Engineers estimate that it will cost $1.6 trillion over the next five years to make the country’s infrastructure safe and dependable. His proposal: fix the problem by setting up a National Infrastructure Bank.

He’s not alone. U.S. President Barack Obama has pledged to create a National Infrastructure Reinvestment Bank. If Rohatyn were younger, I would view this book as his application for the top job.

Rohatyn, 80, is a Democrat who helped save New York City from bankruptcy in the 1970s and later became U.S. ambassador to France. He retains his passion. He sees bold national investments as a way to better America and decries the “radical laissez- faire mind-set” that “sees the government as no more than a source of unproductive spending and waste.”

Who Needs a Canal?

The U.S., he argues, would never have risen so far in the world without government investments that were, in their day, accused of being expensive and unnecessary.

Political wrangling over infrastructure projects might not seem the stuff of great narrative writing. Yet Rohatyn brings a pleasing pace and eye for detail to the task. Though he says he’s no historian, the book makes for a brisk, albeit didactic, read.

The curtain opens on a naked Napoleon Bonaparte rising in indignation from his bath at the Tuileries on April 7, 1803. How dare his brothers question his plan to sell the Louisiana Territory to the U.S.? The money would fund a war on England.

“It is my idea,” Napoleon shouted at them. “I conceived it, and I shall go through with it.”

And so it was that Jefferson, who worried about the constitutionality of his purchase, doubled the size of the U.S.

A Man, a Plan

The book recalls Lincoln’s support for the Transcontinental Railroad, Land-Grant Colleges and the Homestead Act during the Civil War. We’re reminded too of Theodore Roosevelt’s ruthless yet pragmatic drive to expand the influence, military security and commercial wealth of the U.S. by building the Panama Canal. Teddy’s cousin, F.D.R., would use an institution created by Herbert Hoover, the Reconstruction Finance Corporation, to make massive investments that would drive the New Deal.

World War II brought the G.I. Bill, which ultimately cost some $14.5 billion yet resulted in “nothing less than the creation of a knowledge-driven America,” Rohatyn says. And let’s not forget how Dwight D. Eisenhower’s drive to build the Interstate Highway System reshaped postwar society.

Rohatyn doesn’t ignore the nasty side effects of some of these initiatives. Chinese workers by the hundreds died building the Transcontinental Railroad, and hundreds of American Indians were massacred along the way. The capitalists charged with building the line enriched themselves through massive fraud.

Suburban Sprawl

The Panama Canal cost more than 25,000 lives and stoked protests against Yankee imperialism, Rohatyn recalls. And all those interstate highways destroyed city neighborhoods, spread suburban sprawl and fed America’s addiction to foreign oil.

Yet it’s hard to disagree with his conclusion that these endeavors bound the nation together and created a society of greater egalitarianism and prosperity. Which brings us back to levees that no longer stop floodwaters and bridges that collapse.

It’s true, Rohatyn says, that the federal government spends $73 billion on infrastructure each year. Unfortunately, politicians funnel a fair amount of it into pet projects and multimillion-dollar bridges to nowhere, he says. A National Infrastructure Bank would stop boondoggle spending by creating a system for evaluating and ranking projects, he argues.

With Obama in power, such a bank might well become a reality. That just leaves the question of who will run the place.

“Bold Endeavors: How Our Government Built America, and Why It Must Rebuild Now” is from Simon & Schuster (259 pages, $26).

(James Pressley writes for Bloomberg News. The opinions expressed are his own.)

To contact the writer of this column: James Pressley in Brussels at jpressley@bloomberg.net.

Last Updated: February 23, 2009 00:01 EST

http://www.bloomberg.com/apps/news?pid=20601088&sid=ahxI_uSDxuqU&refer=home

comments so far…

• 1.

  February 23rd,
  2009
  3:12 pm

  Felix is truly brilliant: listen to him.

  — Posted by Hank

• 2.

  February 23rd,
  2009
  3:54 pm

  power grid, high-speed railways, broadband internet.
  it was said in these areas of infrastructure, America looks more like a third world country.
  com’on, it’s good for you , babe, it’s good for you.

  — Posted by hoho

• 3.

  February 23rd,
  2009
  5:00 pm

  The ASCE report Rohatyn cites is actually from 2005. The current, revised report puts the figure at $2.2 trillion.

  Here’s the relevant link: http://www.asce.org/reportcard/2009/

  — Posted by Ben

• 4.

  February 23rd,
  2009
  7:47 pm

  sounds as good as the other ideas

  — Posted by bill kennedy

Technical Analysis Tools

Creating a Profitable Trading System

Mark Tinghino


The right tools at the right time for a complete trading system

Format: Hardcover
ISBN: 97815766002485
Publisher: Bloomberg Press
Pub. Date: 2/2008
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Most investors know that highly profitable trading methods employ a number of technical analysis tools. Unfortunately, choosing the right ones is easier said than done.

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AUTHOR

Mark Tinghino is a commodity trading adviser (CTA). He has taught numerous online seminars on technical analysis at the Chicago Board of Trade and the Chicago Mercantile Exchange. He contributed chapters to Tricks of the Active Trader by Neal Weintraub and has written articles for Futures magazine and TradeSOURCE magazine. Tinghino has spent decades developing a unique model for market timing, which uses a combination of several hundred separate cycles. Visit www.tinghino.net for information on his newsletter and ongoing research.Top of Page  

TABLE OF CONTENTS

Foreword by Alan Rohrbach
Acknowledgments
IntroductionPart One: Technical Analysis Trading Arsenal
 1  Approaches to Market Analysis
2  Fundamentals: Navigating the Labyrinth
3  Chart Patterns: Landscape of the Market
4  Alternative Charting Techniques
5  Indicator Soup: Not-so-secret Recipes
6  The Market as a Wave Phenomenon
7  Leveraging Derivatives
8  Finessing the Risk Factor with SpreadsPart Two: Putting It All Together
 9  A Cyclical Model of the Markets
10 Backtesting and Planning Trading Strategies
11 Mental Discipline and Risk Management

Appendix A: Commonly Used Technical Indicators
Appendix B: Futures Products with High Daily Volume
Appendix C: Educational Resources
Appendix D: Trading Reports and Other Forms of News Service
Appendix E: Software Products

Index

Introduction

Technical analysis has come a long way in the past few decades, and today traders of every level make the most of this very useful tool. So, this book is for institutional traders and individual investors alike. Although it takes you through the basics from square one, as well as covering advanced topics, it also offers some unique insights based on my work on cycles for timing trades and on the work of Kerry Denny on evaluating market news, which is not something you will find in most other books available on technical analysis.I begin with a discussion of fundamental vis-à-vis technical analysis, including the historical causes of technical analysis overtaking fundamentals as the preferred approach among professional traders and money managers. I then cover the essentials of reading price charts, followed by adjunct tools such as indicators and Market Profile for assessing volume. To that solid foundation, I add Kerry Denny’s work and my cyclical model, which I use as an overlay on standard technicals for precise timing of trades. Finally, I discuss building a complete trading program and sound money management principles.To date no analyst has been able to accurately forecast market prices 100 percent of the time. Armed with massive computerized number-crunching and modeling capabilities and futuristic neural nets, current state-of-the-art analysis still falls short of National Weather Service meteorological forecasts, which are generally extremely accurate for three days into the future. The difference lies in cause-and-effect factors. Wind vectors and ocean currents are juggernaut forces that are not easily swayed from their course of movement, whereas markets consisting of mass auctions involving a multitude of humans making trading decisions based on emotions and occasionally reason are subject to winds of commerce that can be very fickle indeed.

Like millions of butterflies with fluttering wings, traders, when observed in real time, seem to embody jumbled chaos that only rarely coalesces into some semblance of order that allows one to tie a rise or dip in prices to a set of clearly identifiable statistics of supply and demand. Sudden spikes in intraday price levels often can be seen following major economic reports, but they rarely have any follow-through, and the price settles back into the typical narrow trading range before the end of the regular session. With these spikes, it’s as though the markets were a hornet’s nest, and the Brownian motion of the swarming winged insects gets temporarily disrupted as they fly into a fleeting frenzy. On the other hand, markets do make huge moves from time to time. Savvy traders who are prepared to capitalize on such larger swings can make huge profits when they get on the right side of the move and have the bravado to ride out the roller coaster without jumping off prematurely. Not-so-savvy traders can rack up unnerving losses when they see a big move get under way, proceed to jump in just before a correction, get whipsawed and shaken out of their positions, and end up kicking themselves when the market turns right around and heads screaming back in their direction as they stand on the sidelines dumbfounded and frustrated. (That is assuming they actually get an order filled and don’t end up chasing the market with limit orders that fail to get matched under fast market conditions.)

Designing a killer trading system is only half of the equation. Following that system according to your preset rules is the other piece of the puzzle. Without that premise, the whole thing falls apart, and what should be a smoothly running machine ends up a jerky, out-of-control monster that causes money to spill out of your trading account and into the hands of professional floor traders, specialists, market makers, and large institutions. Curve fitting your analysis is the deadliest of sins. It is the ultimate vanity: the belief that your own conception is superior to the reality of market turbulence that is ready to strike like a Category 5 hurricane on the ill-prepared.

An interesting fact about traders is that they have an entirely different mindset from those who are purely investors. An investor likes to buy and hold, collecting dividends or accrued interest and hoping for some additional rate of return when, for instance, their shares of stock increase in price over periods of years or even decades. By contrast, a trader has a take-the-money-and-run attitude with the goal of parlaying a series of (one hopes) successful trades into a sum of money that is many times the original amount in the trading account. Trading then becomes a business, just like any other type of business. Although to the casual observer it may seem that a trader is engaged in a hobby that either increases the trader’s net worth or decreases it, a serious trader puts in many hours of preparation studying markets, researching price data and (with many of them) charts, and planning specific trading strategies.

I have never worked on an exchange floor. I have visited traders in the pits in Chicago and taken a few cursory glances at the seemingly haphazard flow and execution of buy and sell orders, but that is not quite the same thing as transacting business in such an environment. I have always traded from “upstairs,” armed with up-to-the-second charting software containing all sorts of specialized studies. Some floor brokers find trading in the pits virtually impossible and prefer trading from off the floor, because it is too difficult to assess price action from that vantage point. Other traders have had the opposite reaction, going through a period of adjustment when they leave the pits and can no longer assess the order flow firsthand. They devise other means of making their assessments, which are an integral part of their trading decisions.

Twenty years ago, I used to trade at home with electronic quotes and charts, but I still had to call my broker to get any orders executed. Today, it is an entirely different world. I get real-time quotes and charts and execute trades over a highspeed Internet connection, and need to pick up a phone only when there is an outage. My preliminaries and equity runs come by e-mail prior to the next day’s trading session. It is a solitary pursuit.

Anyone who wants to graduate from amateur to professional trader needs to view trading as a business just like any other type of enterprise. There are costs of doing business, and there are inherent risks. There are matters of accounting and taxes and disaster recovery plans. There is a minimum investment in terms of time and capital to make any business a success, even if there is a sound business plan in place.

The message for my readers is that if they proceed methodically with a sound plan, they can be successful as traders. In the absence of such discipline, they may get lucky, but will lose in the long run, for the odds are against them. They basically have two choices: 1) Find a system devised by someone else and trade it mechanically, or 2) do their own homework and devise their own system. In the first case, they run the risk of most systems in that the systems tend to run hot and cold. Once they start losing money, they will tend to abandon the system and look for another one, ultimately becoming system hoppers and never succeeding in the long run. My opinion is that most people are better off tailoring a system to their own needs and their own trading style based on their unique personality. What works for one person may not work for another. Jack D. Schwager interviewed many prominent successful traders for his book, The New Market Wizards (HarperCollins, 1992), and it is striking how very different each of them is from the others featured in those pages. One common trait they share, however, is that they are self-made and self-sufficient. They are true mavericks.

My hope is that each person who reads this book will be inspired to find his own path to success and sufficient confidence to be able to actually follow that path without deviating. Overcoming fear is a critical factor in all endeavors, but it is particularly critical in the arena of trading. Having a plan that you have constructed on your own can go a long way toward instilling confidence, and may get you through the inevitable losses along the way that take the faint of heart out of the game for good.

The chapters that follow provide some valuable information for any prospective trader regarding time-tested approaches to technical analysis, such as Market Profile, which many floor traders and institutional money managers have utilized for over two decades. Although the scope of this book does not allow for an exhaustive treatment of any specific method, my objective is to provide some insight to guide the reader in selecting one or more avenues of research.

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Option Strategies for Directionless Markets Trading with Butterflies, Iron Butterflies, and Condors Anthony J. Saliba with Karen E. Johnson and Joseph C. Corona Format: Paperback ISBN: 9781576602492 Publisher: Bloomberg Press Pub. Date: 3/2008 208 pages, 8-1/2″ x 11″ Retail Price: $39.95 Your Price: $33.96

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Economic Scene

No. 1 Book, and It Offers Solutions

By DAVID LEONHARDT

Published: December 19, 2007

In 1967, Jack Wennberg, a young medical researcher at Johns Hopkins, moved his family to a farmhouse in northern Vermont.

Related

Economics: The Year in Books, 2007 (December 19, 2007)

Columnist Page

Sara Grosvenor

“Overtreated” by Shannon Brownlee, above, diagnoses the big flaw in medical spending.

Dr. Wennberg had been chosen to run a new center based at the University of Vermont that would examine medical care in the state. With a colleague, he traveled around Vermont, visiting its 16 hospitals and collecting data on how often they did various procedures.

The results turned out to be quite odd. Vermont has one of the most homogenous populations in the country — overwhelmingly white (especially in 1967), with relatively similar levels of poverty and education statewide. Yet medical practice across the state varied enormously, for all kinds of care. In Middlebury, for instance, only 7 percent of children had their tonsils removed. In Morrisville, 70 percent did.

Dr. Wennberg and some colleagues then did a survey, interviewing 4,000 people around the state, to see whether different patterns of illness could explain the variations in medical care. They couldn’t. The children of Morrisville weren’t suffering from an epidemic of tonsillitis. Instead, they happened to live in a place where a small group of doctors — just five of them — had decided to be aggressive about removing tonsils.

But here was the stunner: Vermonters who lived in towns with more aggressive care weren’t healthier. They were just getting more health care.

Dr. Wennberg would eventually move to Dartmouth and, over the last 30 years, has done versions of his Vermont study for the entire country. Again and again, he has come up with the same broad result. And that result holds the key to health care reform — how to spend less on health care while not making the population any less healthy.

Dr. Wennberg’s story forms the backbone of “Overtreated,” by Shannon Brownlee, which is my choice for the economics book of the year. This was another very good year for economics books. Alan Greenspan wrote a best-selling memoir that was really two books, one an autobiography, the other an exposition on the virtues of the free market. Robert H. Frank and Robert Reich wrote thoughtful books about reversing the excesses of that free market. Paul Collier offered a clearheaded argument for reducing global poverty in “The Bottom Billion.”

But I’m going with Ms. Brownlee’s book because it’s the best description I have yet read of a huge economic problem that we know how to solve — but is so often misunderstood.

As you’ve doubtless heard, this country spends far more money per person on medical care than other countries and still seems to get worse results. We devote 16 percent of our gross domestic product to health care, while Canada and France, where people live longer, spend about 10 percent.

Some of this difference is unavoidable. The United States does more than its share of medical research and bears much of those costs. It also has a diverse, economically unequal population, which, in turn, leads to a diverse and complicated set of health problems.

But health care spending simply can’t continue to rise at its current pace. If it did, it would “eventually overwhelm both the federal budget and workers’ paychecks,” as Peter Orszag, director of the Congressional Budget Office, told me. “Slowing such growth is the single most important step we can take to assure our fiscal future and lift a growing burden on workers.”

Fortunately — if that’s the right word — there is an obvious candidate for cost-cutting: all that care that brings no health benefit. It’s not hard to find examples. Scientific studies have shown that many treatments, including spinal fusion, routine episiotomies and neonatal intensive care, are overdone. These procedures often help specific subsets of patients. But for a lot of people, and “Overtreated” is full of stories, the treatments are a modern-day version of bloodletting.

“We spend between one fifth and one third of our health care dollars,” writes Ms. Brownlee, a senior fellow at the New America Foundation and former writer for U.S. News & World Report, “on care that does nothing to improve our health.”

Worst of all, overtreatment often causes harm, because even the safest procedures bring some risk. One study found that a group of Medicare patients admitted to high-spending hospitals were 2 to 6 percent more likely to die than a group admitted to more conservative hospitals.

Why is this happening, then?

Above all, it’s the natural outgrowth of our fee-for-service health care system. It turns doctors into pieceworkers, as Ms. Brownlee puts it, “paid for how much they do, not how well they care for their patients.” Doctors and hospitals typically depend on the volume of work for their income, and they are the gatekeepers who decide when work needs to be done. They also worry about being sued if they do too little. So they err on the side of overtreatment.

Patients play a role, too. We’re entranced by the wonders of modern medicine and fooled by our byzantine health insurance system into thinking that we’re not really paying for all those unnecessary spinal fusions.

The typical book about current affairs is better at describing problems than solutions. But there is a nice surprise at the end of “Overtreated.” (If you find yourself wishing the book had fewer anecdotes, I’d suggest you skip to the end rather than putting it down.) In plain English, Ms. Brownlee lays out an agenda for reform that is usually confined to academic journals.

It includes some steps that should be widely popular, like giving doctors incentives to explain the risks and benefits of procedures more clearly than they do now. Research has shown that patients frequently decide against marginal care when they know the true risks and benefits. Malpractice laws would also need to be changed so doctors were not sued by patients who later changed their minds.

Other solutions would be more difficult — because medical evidence is often murky, because hospitals and insurers would fight to keep their revenues and because most Americans think it’s the other guy who’s getting unnecessary treatment. These are the reasons that presidential candidates don’t focus on wasteful treatment.

But models for reform are out there. Hospitals that don’t use the fee-for-service model, like those run by the Veterans Health Administration, are already getting better results for less money. They closely track their performance — that is, the health of their patients — and motivate employees to improve it.

As I’ve written before, there is nothing wrong with devoting a large chunk of our economy to medical care. Since the 1950s, doctors have made incredible progress against diseases that were once inevitably fatal. That progress is probably the finest human achievement of the last half century.

If we weren’t wasting so much money on overtreatment, it would be a lot easier to repeat the achievement over the next half century.

E-mail: leonhardt@nytimes.com

http://www.nytimes.com/2007/12/19/business/19leonhardt.html?ref=business

Drobny humanizes his hedge fund operators, showing them as global thinkers out to exploit any opportunity in inefficient markets, but not as a force out to destroy the financial system. 

……………………………………………………………………………………………..

Book Review
The Philosopher Kings Of Hedging
Robert Lenzner, 07.29.06, 12:35 PM ET

Steven Drobny’s inside look at hedge funds couldn’t come at a more appropriate time. Everyone should know what makes these private investment partnerships tick, where they are putting their gobs of money and how they see the markets going forward. Hedge funds, after all, are believed to account for up to half of all stock trading and are the controversial focus of a debate and legal fracas over their regulation.

Drobny’s Inside The House of Money ($30, John Wiley & Sons, 2006) sheds more light than ever on the minds behind the largest global macro hedge funds, those giant pools of money that see the whole world as their oyster (unless they’ve gone short on shellfish). They make big bets on crude oil, Eurodollars, gold, Japanese bonds, Brazilian soybeans, sugar, cotton, you name it–investments that most ordinary investors would likely avoid.

Drobny humanizes his hedge fund operators, showing them as global thinkers out to exploit any opportunity in inefficient markets, but not as a force out to destroy the financial system. It is a welcome relief from the harping of a skeptical crowd of onlookers who seem to see the forces of darkness lurking behind every one of these partnerships.

The book reveals the intricacies of thinking like a hedge fund manager. Marko Dimitrijevic of Miami’s Everest Capital liked Argentinean banks, went short with Japanese government bonds when they were yielding only 0.45% (very clever, because interest rates were bound to rise and depress the bonds) and was also playing the markets in Cyprus, Mongolia and Uruguay. He also recommended YUM Brands (nyse: YUM - news - people ), owner of Kentucky Fried Chicken and Pizza Hut, as the best American stock to play the growth in China.

There’s some brilliant common sense here, valuable to us mere mortals. Dr. John Porter of Barclay’s Capital believes that momentum trading is the flavor of the month and that “people who are indexed are going to get killed.” Porter anticipated the knee-jerk response of the U.S. Federal Reserve to loosen money when tech stocks sold off in 2000. He loaded up on two-year Treasuries at 6.75%, which was a bet that interest rates were headed down and the value of the notes were headed up. It was a highly profitable play when the cost of money dropped to 1%.

Drobny also shows how managers have learned from past hedge fund failures. Peter Thiel of Clarium Capital in San Francisco refuses to become the next Long Term Capital Management. He places stop-loss orders on every trade– a very tough discipline–but one that limits disastrous losses.

One shortcoming of the book is that since hedge fund operators are so nimble, they may well be long out of the positions they revealed to Drobny in 2005. That’s the nature of hedge funds; they don’t have investment committees and can dump a position in five minutes and get back in it the next day. What’s compelling among these money managers is their intensity in educating themselves about nations and bottom-up individual investment opportunities.

Many years ago, Dwight Anderson, then with Tiger Management, now with Ospraie Management in New York, explored palladium mines in Siberia to ascertain the true world shortage of that precious metal. Tiger made a killing when Palladium soared from $120 an ounce to more than $1,000 an ounce.

An underlying theme of the work is that macro traders “thrive on dislocation and economic upsets. Macro traders always do better when the world economy is tanking,” says one of the managers. So, unlike the proverbial market optimists, macro operators like disasters such as currency crises or political upheaval, because they produce the panic selling and market bottoms that provide the biggest upsides.

Running through these interviews is an uneasy sense that we’re on the cusp of dangerous times. Scott Bessent of Bessent Capital says, “At some point we will have had The Big One. It’s out there. I don’t know if it’s a financial asset depression or a real depression.”

Dr. Sushil Wadhwani, of Wadhwani Asset Management in London, says, “What you’ve got now is huge asset-market distortions, and one of these days, the chickens will come home to roost, and when they do, there’ll be huge opportunity.”

So, for the wealthy investors in hedge funds, these are prospective opportunities. For the ordinary investors, these are warning signals to be prudent and protect your assets.

http://www.forbes.com/2006/07/29/hedge-funds-drobny-0728bookreview.html 

http://www.kamakuraco.com/books_DVD_book4.htm 

Advanced Financial Risk Management: Tools and Techniques for Integrated Credit Risk and Interest Rate Risk Management

Advanced Financial Risk Management outlines an integrated framework for fully integrated risk management. Credit risk, market risk, asset and liability management, and performance measurement have historically been thought of as separate disciplines, but recent developments in financial theory and computer science now allow these views of risk to be analyzed on a fully integrated basis.

In Advanced Financial Risk Management Donald R. van Deventer and Kenji Imai, joined by Mark Mesler, extend the concepts outlined in their previous book Credit Risk Models and the Basel Accords and update their 1996 work Financial Risk Analytics. The authors lay out a comprehensive strategy of risk management measures, objectives, and hedging techniques that apply to all types of institutions. They describe a performance measurement approach that goes far beyond traditional capital allocation techniques in measuring risk-adjusted shareholder value creation. Most important, the authors supplement this strategic view of integrated risk with step-by-step tools and techniques for constructing a risk management system that achieves these objectives.

The authors start with an updated review of techniques for constructing the building blocks of risk management, continuous yield curves that are used in everything from equity options to mortgage-backed securities analysis. They show how the creation of smooth credit spreads from bond price data is an extension of traditional yield curve smoothing technology. The authors review the primary credit risk models and discuss the implementation of the most modern form of credit models, the reduced form models of Jarrow, Duffy and Singleton, at great length. They present results from a 1.2 million observation data base on default probabilities in demonstrating how to meet Basel II requirements for credit model testing. They also show how to estimate default probabilities from bond prices and credit derivatives prices even when there is a liquidity “premium” reflected in those prices above and beyond the risk of expected loss due to default or bankruptcy.

The authors then go on to show how three important topics in finance are special cases of the credit risk analysis they introduce: prepayment modeling, valuation of life insurance policies, and the valuation of property and casualty insurance contracts. Van Deventer, Imai and Mesler also revisit the critical issue of the valuation of savings deposits and demand deposits, which have no explicit maturity and a random principal balance.

Finally, the authors present a comprehensive framework for performance measurement at both the transaction level and the portfolio level that is consistent with best practice valuation techniques. Performance measurement has a history of many decades but it is rapidly evolving beyond simple concepts of “plus alpha” or interest rate margin to true measures of value generation.

Advanced Financial Risk Management also contains a rich array of formulas for basic and advanced risk management calculations which will be of enormous use to practitioners in fund management, pension fund management, banking, insurance, and the securities industry.

Donald R. van Deventer, Kenji Imai, and Mark Mesler have work for and implemented risk systems for some of the largest and most sophisticated financial institutions in Europe, North America, and Asia. Donald R. van Deventer was named to the RISK Magazine Hall of Fame in December 2002 for his work at Kamakura Corporation, where Kenji Imai and Mark Mesler are also on the Managing Committee.